Indonesia is grappling with dwindling natural reserves, regional autonomy problems, liberalizing the energy sector as well as creating opportunities for foreign direct investments into the energy sector. Recently, oil and gas prices have reached new benchmark levels. According to Indonesia’s Central Board of Statistics (BPS), Indonesia posted a decline in its oil and gas exports on a month-on-month basis in January 2005: Exports of oil products shrank 33.83 percent to 66.9 million US Dollars.
Indonesian national oil and gas company Pertamina which used to have the exclusive monopoly as a regulator in the oil and gas downstream and upstream industry in Indonesia has to deal with these challenges. Critics have accused the state-run company of being too much of a ‘dinosaur’, being too diversified and slow to respond to market forces. After the liberalization of the oil and gas industry in 2003, the company wants to focus on its bottom line and streamline itself to meet intense competition. In order to integrate its business processes, eliminate redundancies, improve its transparency and accountability to the public, it turned to SAP R/3 Enterprise as its core IT architecture linking its diversified businesses into a comprehensive yet scalable Enterprise Resource Planning (ERP) network.
Unifying several IT systems
Pertamina has more than 20,000 employees and several strategic business arms with 14 subsidiaries in oil trading, hotel properties, shipping, airlines, dockyard maintenance, hospitals, insurance, manufacturing, and several other related services. Some of them, such as airline company Pelita Air Services and hotel and restaurant chain Patra Jasa, have already implemented SAP R/3 Enterprise as part of their ERP framework. Others like Pertamina Hospital are considering extending SAP R/3 Enterprise to its daily operations.
Implementation with a roadmap
Pertamina saw IT rationalization as the next logical step to reengineer itself. A Pertamina project team was formed. Triyadi Prayogo, vice president business system and information technology, recalls how they found the balance between what was acceptable for the users and how changes in IT would impact upon Pertamina’s bottom line – and, not to forget, its employees. They scrutinized ten ERP solutions before they opted for the SAP R/3 solution in early 2001. “We had to move our legacy data located on large mainframes to a decentralized client server model,” says Prayogo. “Our former legacy system developed with Mantis programming language was not cross functional and was unable to integrate all the different existing systems in Pertamina. SAP R/3 Enterprise had to replace them all.”
The project team designed an IT roadmap depending on the overall Pertamina roadmap. During all phases of the following implementation, they had to take account of compliance with this roadmap. SAP consultant Accenture was selected to assist implementing SAP’s solution. SAP was chosen as it had in place a well-known solution map for exploration, production, business processes, refining and marketing to corporate functions within the oil and gas industry. They have already taken account of the integration of third-party software. In the upstream oil and gas sector, specialized geologic, geographic and geophysical software is offered. Compared to SAP R/3 Enterprise which is transaction-based, these solutions are focused on number-crunching and are science-oriented. The SAP solution, in turn, provides interfaces for such scientific software so that they can be linked to various transaction-based modules within the SAP framework. Pertamina implemented SAP components Financials-Controlling (FI-CO), Materials Management (MM), Sales and Distribution (SD), Production Planning (PP), Plant Maintenance (PM), Project System (Project System) and Human Resources (HR).
Not much customization or localization needed to be done before Pertamina could run SAP. The only major concern was that the project team had to adapt the internal accounting fields according to the many zeros of the Indonesian Rupiah currency denomination. With the help of SAP Indonesia, this was fixed promptly.
Right now, Pertamina is concentrating on the integration of business processes. “Previously, users were only concerned with the applications they were familiar with. Now, with SAP, things have changed. First, users were a bit worried about this, but as more and more users became familiar with the SAP components, they regained self-assurance. After we performed the training and one of the sites went live, users became familiar with the system before full implementation of the solution,” reflects Prayogo.
By 2006, Pertamina expects to migrate all the data from the legacy system to one SUN Solaris enterprise server for SAP. Pertamina is also looking at disaster recovery and data warehousing to be run in parallel with increasingly centralized operations which, at that stage, would be a very critical application for Pertamina.
Integrating all Indonesian sites
For the time being, the SAP backbone is linked only within Indonesia, and not connected to its sales offices in Japan and Singapore. The next aim is to optimize SAP across the various centers in Indonesia and to install monitoring functionalities on a local basis. This involves the following procedure: When a problem crops up in a location, a report is sent to the user focus group concerned whose coordinator tries to solve the issue on site. If this is impossible, he reports it to the head office in Jakarta where they try to scrutinize the problem. Having this flexibility to be able to monitor and observe its operations in the field will be considered an added advantage that SAP brings to Pertamina.
Pertamina is in a state of continuous development, and its IT needs and requirements are developing hand in hand with the growth of the company. Before the liberalization of the oil and gas market, the IT department had to comply with government regulations. They had to generate reports according to government’s standards, in both English and Bahasa Indonesia.
Example for good business practice
Now, however, as part of a good corporate governance practice for operational units, every Pertamina business unit will use SAP R/3 Enterprise to watch critical inventory levels and to forecast future sales. By doing so it is able to drill down to profit and loss from each business unit. And that will make Pertamina more transparent and enhance its image of being a good corporate citizen in Indonesia. It will inadvertently sharpen its sense of accountability that will go a long way to improving its bottom line.
Continuous improvement is seen as a trademark for any large company looking to reengineer itself. “We want to be an example for good business practices,” says Prayogo. “We need to work hard to realize the full potential of IT – but this is only one part of the issue. We also need to rely on the famous Seven S’s as detailed by McKinsey for running a successful organization. They are strategy, structure, systems, style, skills, staff, and shared values.”
Pertamina aims to roll out the total SAP Business Suite within the next three years. By then, it would be able to count on a steady ROI. The company also hopes to outsource its core competencies and the skills it has inherited to other oil and gas majors in Indonesia.